To stay in the top job, a British prime minister has to try and keep certain groups happy. MPs, party members and donors do not like to be ignored.

Nor do the bond markets. And often it feels like they matter the most.

That’s because those markets are what make it possible for governments to spend money. Each of the bonds is essentially a loan from an investor to the state.

In return for the loan, the government pays a certain amount of interest (yield) for a set period, before paying back the original amount.

Governments seen as safe and financially credible can usually borrow at cheaper rates. But if investors become worried about inflation, or excessive borrowing, or weak economic policies or political instability, they might demand higher yields to compensate for the greater risk.

It’s the same principle that applies to ordinary household borrowing. A person with a stable income and a good credit history can borrow more cheaply than someone seen as a financial risk.

Modern governments rely heavily on borrowing to fund public spending on everything from schools to hospitals and defence. This is why they pay such close attention to market confidence.

Within that market are a wide range of investors, including pension funds, banks and insurance companies. Together, their investment decisions determine how expensive it is for governments to borrow........

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